Stark reading: As the recession grips the region, Nadia Elghamry reports on the findings from EG’s survey of its property players
If your MIPIM tan has not already faded, this could make you blanch.
One-third of Wales’ property players believe that more large-scale redundancies in the industry are on the way (see graph 9).
EG‘s South Wales sentiment survey for the first quarter of 2009 gathered responses from agents, developers, investors, and central government and local authority employees in Cardiff, Newport and Swansea.
The results make for stark reading. Already battered and bruised by office closures, redundancies and retrenchment, just over 33% of respondents believe that more big culls are on the way. Most of the remaining two-thirds believe that there will still be some redundancies, but hope that the worst is over.
As in the rest of the UK, the industry in South Wales is typified by plummeting morale, crippling contractions, and closures.
Declarations made last summer that South Wales would weather the economic storm due to its lack of reliance on financial services sector now look worryingly hollow. Respondents forecast a deterioration in every sector of the market (graphs 4 and 5).
Particularly badly hit are retail warehousing, shopping centres, unit shopping and leisure.
Although opinion is divided over whether some parts of the property industry will recover over the next six months, one thing unites them all: nobody thinks that retail warehousing or leisure will improve.
Wales is now in the full grip of a recession and, over the next six months, almost 70% can foresee no improvement at all (1 and 2). The remaining 30% expect conditions to deteriorate.
Economic woes
Capital values are down by one-fifth compared with six months ago, and are expected to drop a further 10% (7). Similar falls are expected in the region’s rental market, on top of the losses of 5-10% that have already been seen (8).
That said, for those readers begging for a piece of good news, the survey may be able to offer a chink in the recession armour.
Unlike those in virtually any major city polled so far by EG, a small minority of developers in Wales are considering developing speculatively, albeit in small chunks.
This may be an acceptance that, economic woes aside, its capital city has a limited stock available for occupation. However, that is the end of the good stuff.
Where the funding will come from is another matter. More than three-quarters of those surveyed say that funding is difficult or very hard to secure.
Understandably, nobody believes it will get easier. As a result, the vast majority of developers are either developing with a prelet, if finances allow, or pursuing planning permission but not starting on site.
Some respondents are still highly concerned at where in the cycle the market actually is. Featuring near the top of the list of worries is also a lack of occupiers and their ability to remain solvent, as well as a lack of funding. Hardly any of those surveyed are sweating over sustainability issues, corporate social responsibility and the regulatory regime.
Yet some are warning against having an outlook that is too pessimistic. Jonathan Phillips, senior associate in King Sturge’s Cardiff investment team, is one.
“Agents and investors who view the year ahead as an opportunity rather than with trepidation could be rewarded,” he says.
“Significant yield gap has re-emerged. However, quantifying covenant risk is paramount, along with good banking relationships.”
Whether Phillips’ sunny outlook is rewarded will be tested in EG‘s next South Wales survey, due to be published on 14 November.
